Officials: Libya's account still gets oil payments

A Libyan oil official said Wednesday that exports from the rebel-held east were proceeding normally and that funds for the shipments would continue to be deposited in the country's accounts even if the OPEC nation comes under international sanctions.

The official said production in the east had declined by just over 50 percent, but that full storage tanks meant exports were continuing at normal levels for now. The country's de facto oil minister, Shukri Ghanem, said several days ago that production nationwide has also declined by half.

But given the fluidity of the political developments in Libya and the lack of credible information on actual field production levels, analysts and experts are at a loss to offer more than guesses about how much of the country's daily output of roughly 1.6 million barrels is still onstream.

Some experts were skeptical that more than a trickle of oil could still be flowing out of Libya.

"There is a long cue of tankers," said the official with the Arabian Gulf Oil Co., stressing that his firm had broken ties with its parent company, the state-run National Oil Co. "We don't want to stop the exports. It's not in our interest, or the interest of the global market. We're trying to ease the market."

Ghanem, who also heads the National Oil Co., could not be reached for comment and it was unclear where Libya's oil accounts were being held.

Global oil prices have spiked on concerns about the potential impact of supply disruptions from Libya and the possibility that the broader unrest in the region could spread to more strategically significant members of the Organization of the Petroleum Exporting Countries such as Saudi Arabia.

For traders and companies, a new layer of uncertainty has surfaced related to who would now receive the payments for the oil shipments from the east.

The Agoco official, who spoke on condition of anonymity because of security concerns, said the payments are still going into the existing NOC account and would continue to be paid there "even if Libya's accounts are frozen."

But Libya's international customers may not be comfortable with this arrangement.

Experts said that Agoco's break with NOC raises several legal issues and that companies may, instead, prefer to make payments into some sort of escrow account to be held in trust until either Libyan leader Moammar Gadhafi's government fell, or some other political solution was reached.

"The legal structure is not clear here, and that's a very important element," said Mohammed El-Katiri, a Mideast expert with the Eurasia Group in London. "From a legal perspective, (an escrow account) makes a lot of sense. It gives security to the buyers and credibility for the national oil company."

The questions about the payment system, and overall production levels, reflected the broader sense of chaos in the country.

While forces loyal to Gadhafi had control of Tripoli and by extension large portions of the country's west, they have made questionable progress in retaking the east from rebels.

Pro-Gadhafi forces were said to have retaken the oil installation of Brega, according to witnesses, but the rebels were battling to regain control. In either case, oil was said to still be flowing to the facility, though at reduced rates. Oil workers in the area said that pipeline throughput had dropped from 90,000 barrels per day to about 11,000 barrels per day.

The Agoco official said tankers were at the port in Marsa al-Harigah, near the city of Tobruk. Rajab Sahnoun, another executive with Agoco, said they were receiving their normal volumes through the pipeline to the port near Tobruk - roughly 70,000 barrels per day.

The one positive sign in Libya is that "for now there has not been any sign that any oil installations have been damaged, and that is good. For now the oil assets have not been touched," said Olivier Jakob of Petromatrix in Switzerland.

But with production clearly down, another issue of concern was about how long the exports would be sustainable irrespective of whether the fields, terminals and other facilities are held by the rebels or the government.

Daniel Johnston, an oil consultant and engineer who has advised international oil companies as well as the Egyptian and Moroccan governments on production contracts, said he would be very surprised if more than "a trickle" of oil was still coming out of Libya.

"More than 50 percent of the country's oil production comes from international companies and they just hate that kind of unrest," said Johnston, who has worked in the oil industry for more than 35 years and runs a consultancy out of Hancock, New Hampshire.

The crude currently being loaded is running down inventories that, given the reduced flow through some pipelines, would mean it would take longer to rebuild stocks. Marsa al-Harigah has the capacity to store about 4 million barrels of crude, and its stocks are full, according to officials at the port.

The rosier picture being painted by eastern oil officials stands in stark contrast to the bleak assessment by analysts and experts. But it also appears to be a continuation of the political game that both the central government and the rebels are playing - with each side working to cast themselves as the reliable and legitimate party.

"There's a clear desire by Benghazi to have the oil wealth," said El-Katiri, referring to Libya's second-largest city, which sits at the heart of an eastern region that Gadhafi purposely left underdeveloped for decades.

"It is, in a sense, a state in the process of being built," he said. The rebels want "to give the image that they're reliable and in control, and they need that oil money to come in."